Gabriele Enterprises has bonds on the market making annual payments, with eight years to maturity, a par value of $1,000, and selling for $952. At this price, the bonds yield 6.1 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

Question

Business

Elena Golden

14 January, 04:17

Gabriele Enterprises has bonds on the market making annual payments, with eight years to maturity, a par value of $1,000, and selling for $952. At this price, the bonds yield 6.1 percent. What must the coupon rate be on the bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

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Answers (1)

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Amos · Answer 1

=5.32% (Approx)

Explanation:

Current price=Annual coupon*Present value of annuity factor (6.1%,8) + $1000*Present value of discounting factor (6.1%,8)

952=Annual coupon*6.18529143+1000*0.622697222

Annual coupon = (952-622.697222) / 6.18529143

=$53.24 (Approx).

Coupon rate=Annual coupon/Face value

=$53.24/1000

=5.32% (Approx)